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Once Border Wall Is Resolved, Even Bigger Challenges Await

Blog Post

By: Robert Bixby

Wednesday, January 02, 2019

Don’t look now, but budgetary gridlock on Capitol Hill is about to get worse. So is the deficit.

With all the attention being paid to the partial government shutdown over funding for a wall on the Mexican border, it is easy to forget that up until the end of the fiscal year in September the appropriations process was going fairly well. Five of the 12 annual appropriation bills passed on time, funding about 75 percent of agency budgets.

Aside from the wall, which is holding up funding for the Department of Homeland Security, there is not much controversy over the remaining seven appropriation bills.

However, when the border wall issue is eventually resolved, even bigger challenges await.

Not only is the deficit projected to exceed $1 trillion in the next fiscal year, up from the $973 billion deficit projected for this year, but the caps on appropriations (discretionary spending) are scheduled to decline by about 10 percent.

In other words, unless there is some new agreement to raise the caps, as has happened three times since the caps were enacted in 2011, Congress will have less money than it had this year to spend on these programs. That means less money for domestic programs that House Democrats will want and less money for defense spending that Republican lawmakers and President Trump will want.

If appropriation bills were hard to pass with a $1.2 trillion cap in Fiscal Year 2019, it is safe to assume they will be even more difficult to pass when the cap goes down to $1.1 trillion in Fiscal year 2020. Moreover, as we’re seeing with the current shutdown over the semantics of border security, policy differences can be as problematic as funding issues.

Unwillingness to make hard choices is what led to improbably declining caps in the first place. A special “Super Committee” in 2011 was supposed to come up with $1.2 trillion to $1.5 trillion in deficit reduction.

If the committee failed, discretionary spending programs would be capped through Fiscal Year 2021 at a level $1.2 trillion below what was projected at the time. This was to be enforced by an automatic, across-the-board cut known as “sequestration.”

The theory behind sequestration was that the cuts would be so painful that lawmakers would avoid them by making politically difficult policy changes to taxes and large mandatory spending programs such as Social Security and Medicare. But this theory proved wrong.

First, policymakers allowed the cuts to go into effect in March 2013. Then in subsequent years, as the cuts grew deeper and more painful, policymakers simply raised spending above the sequester cap level, sometimes offsetting the increased spending by relying on budget gimmicks.

The most recent agreement raised the caps for fiscal years 2018 and 2019. The caps will spring back to life, however, in fiscal 2020, which is the year the new Congress will be turning its attention to when this year’s delayed process is completed.

Meanwhile, the deficit has resumed an upward path. Current projections by the Congressional Budget Office show the deficit rising above $1 trillion in every year beyond 2019, reaching $1.5 trillion by 2028.

Because fiscal policy is on an unsustainable track under current law, even if the old caps go into effect, gridlock will mean higher deficits. And if Congress reaches an agreement to raise the caps and fails to find legitimate offsets, these projected deficits will increase.

All of this leaves out the clash of wills that is likely to take place over taxes and mandatory spending programs such Medicare and Medicaid. Newly empowered House Democrats may seek to expand mandatory spending while the president and Senate Republicans may keep pushing for more tax cuts.

So for all those who will be tempted to breathe a sigh of relief when the Mexican border wall fight is resolved, think again. Our fiscal problems run far deeper and one thing is certain: Mexico is not going to pay for the debts we are racking up any more than it is going to pay for the wall.

It’s time to get serious about the real fiscal crisis. The president and Congress need to resolve the current standoff quickly, move on to a longer-term deal on spending caps and address the structural gap between mandatory spending and revenues. Anything less will just be passing the buck...again.